Adjusting our Target Price to reflect sensitivity to Cost of Equity
Key Takeaways :
▪️BBNI posted net income of IDR5.2tn in 1Q23 (+13.0% QoQ/+31.8% YoY) forming 24.6%/24.1% MNCS/street estimate of FY23E earnings. NIM recorded -20bps QoQ contraction on the back of rising CoF despite +7.2% YoY loan growth and yield repricing, but lower CoC came to rescue the bottom line.
▪️ Funding, liquidity and capital remains solid and thus we believe any risks could be well contained. Further improvement in asset quality is likely given : 1) 39.4% of BBNI's Covid restructured loan portfolio eligible for stimulus extension, 2) sufficient NPL/LaR coverage (286.8%/48.9%) and 3) improvement in written off asset recovery rate (1Q23 : 43.1% vs 1Q22 : 41.5%).
▪️Maintain BUY call on BBNI with TP adjustment to IDR10,800/share (vs IDR11,400/share previously) to reflect higher Cost of Equity (Ke) driven by raising risk premium to hold equity amidst more attractive valuation of short-duration government bond asset. Our TP implies 1.3x FY23F P/B vs current trading at 1.2x FY23F P/B.
▪️Key downsides : 1) lower than expected loan growth and deteriorating NIM, 2) longer than expected high policy rates. The key upsides if : 1) rate cut signal intensify and or materialized and 2) substantial improvement in asset quality.
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